Venture capital investment in US biotech companies has skyrocketed as Chinese investors continue to fuel the US pharmaceutical startup sector. With over $1.4 billion invested by Chinese VC funds into private US biotechnology firms in Q1 2018 alone, the Chinese investment community represents a materially significant and growing source of growth capital for the industry.
While recent trade rifts between the US and China have threatened industries including US coal producers, farmers and crude oil industries, the biotechnology hubs of Cambridge and Silicon Valley continue to see Chinese investment coming in. Over this past summer, we've seen a flurry of retaliatory tariffs enacted by policymakers in both countries that have made many industries concerned of the future strength of their market. However, the biotechnology sector remained relatively unscathed with Q4 2017 and Q1 2018 reports reflecting a growth of almost $1.5 billion, per Pitchbook.
Just over a decade ago, the Chinese pharmaceutical market had been solely dominated by the generics industry. The significant resources required to support innovative drug development forced most domestic pharmaceutical companies to prioritize short-term revenue through developing generic drugs. While the strength of the generics industry in China still remains significant, policies that put innovation at the forefront have placed the Chinese pharmaceutical sector at a turning point. Today we are seeing a transformation in a market that once focused on solely manufacturing products to one that funds innovative cures through fostering a strong domestic sector and foreign investment.
Recent government initiatives have even further invigorated the industry making the biotech field eligible for expanded government R&D subsidies, additional funds for science parks, and incentives to innovate personalized treatment and drugs that treat critical disease. Specifically, these initiatives could provide preferential tax policies that would aid small to micro-sized enterprises that are focused on these development areas.
Further, announcements made earlier this year that the Hong Kong Stock Exchange (HKEX) will allow pre-revenue biotech companies to list onto its stock exchange has potential to further expand the Chinese market and serve a great opportunity for Chinese investors. Allowing for this second listing may provide legitimacy and help companies attract additional investment.
Despite the recent increase in political and financial support strengthening the Chinese biotech sector, the threat of deepening trade disputes has created a relatively unpredictable political climate.
Recently, on August 13, 2018, President Trump signed into effect the Foreign Investment Risk Review Modernization Act of 2018 (FIRRMA), which provides more vigilant scrutiny of foreign acquisitions and investments in the US. These FIRRMA reforms expand the jurisdiction of the Committee on Foreign Investment in the United States (CFIUS) that President Trump states, "closes the gap" between what transactions CFIUS can review and what they previously could not. While FIRRMA does not mention China specifically in the legislation, over the next few months it will be important to consider the country's role in this narrative as Chinese investment continues to expand in the US biotech market.
But as for now, it is too close to tell what CFIUS may mean specifically for biotech deals between Chinese investors and US companies. While the logistics of the law will be flushed out in the coming months, it will be important for companies and investors alike to be aware of the potential implications these reforms may have on Chinese acquisitions of US companies and rates of investment.
To stay abreast of these important issues in the global biotech investment community, we invite you to attend the 17th annual BIO Investor Forum in San Francisco on October 17-18, 2018. Learn more about China's investor boom, the HK stock exchange, and the implications new CFIUS legislation may have on your investment deals during the two full days of education sessions.
Below are a few featured sessions from the 2018 BIO Investor Forum program:
Reaching Chinese Investors: Considerations for an IPO in Hong Kong
Wednesday, October 17, 2:00-2:55 pm
The Hong Kong Stock Exchange is capturing worldwide attention as it modifies listing rules to permit biotech companies, opening the door for Chinese firms seeking public market financing as well international firms eyeing the support of investors in China. In just the exchange's first few weeks more than USD 1 billion in new offerings have generated funding that will be applied to accelerate clinical research on behalf of patients. This session will examine cross-border perspectives on the appetite of China-based investors for biotechs and the criteria to determine the attractiveness of listing on the exchange for foreign entities as Hong Kong sets its sights at becoming a major biotech funding source.
Policy Outlook- Implications of the Trump Administration's Healthcare Initiatives
Wednesday, October 17, 3:15-4:10 pm
Across 2018 the U.S. federal government has launched multiple new initiatives regarding how new medicines will be authorized, commercialized, and reimbursed, including in such areas as genome editing, continuous manufacturing, and Medicare rebates. This panel of people close to the policy making process will share the latest data on FDA expectations, plus discuss the Trump Administration's stances on healthcare spending, the opioid addiction crisis, trade tariffs, and tax policies that will affect biopharmas both immediately and in the years ahead.
Explore additional educational programming and investor partnering opportunities here. We welcome you to join us this year at the BIO Investor Forum.
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